The Middle East will continue to be Japanese refiner Eneos Holdings' main crude source, but dependence on the strait of Hormuz could be lowered depending on the cost and risk balance, executive vice president and chief financial officer Soichiro Tanaka said in an interview with Argus.
"The Middle East will remain a crude source with a significant share, although its share may decline from past levels," Tanaka said. The firm will return to Middle Eastern crude to some extent as the situation stabilises, given its economic advantages and the firm's experience of processing Middle Eastern crude as its main crude supply.
Nationwide, Japan has started discussions to diversify crude oil sourcing, including a scheme to raise funds from refiners and importers to support diversification.
"If it becomes an economically viable framework and offers greater overall value in various respects, we will choose to make use of it," Tanaka said. The framework will have influence on Japan's future dependence on the Middle East for crude, but "Middle Eastern crude will not drastically decrease," he said.
Japan sourced 94pc of its crude imports from the Middle East in 2025, and most of the volumes passed through the strait of Hormuz. To reduce geopolitical risk, Japan is also considering financial measures to support construction and enhancement of alternative supply facilities in the Middle East, such as pipelines bypassing the strait. Reducing reliance on the strait "depends not only on buyers but also on suppliers' measures such as pipeline construction," Tanaka said. "Hopefully, it will settle at the point where risk and cost are best balanced, but that is beyond our control," he added.
Currently the disruption at the Bab el-Mandeb strait is affecting Eneos' crude procurement, but the level is limited and Eneos can still meet domestic supply, he said. "Some adjustments have been necessary, but there is no supply shortage. It is a matter of timing and a temporary structural fluctuation."
Exploring overseas potential
Eneos as a group aims to raise its overseas revenue to around 50pc in the April 2030-March 2031 fiscal year. As part of this strategy, the company has announced plans to acquire petroleum assets in southeast Asia and Australia from Chevron, including its 50pc share of Singapore Refining Company's export-oriented 290,000 b/d refinery, as well as terminals and supply networks in southeast Asia and Australia.
The firm has not fully utilised its capacity to conduct trading, and there is potential here, Tanaka said. The acquisition of assets in southeast Asia will provide a return in trading backed by assets, he reiterated, highlighting the expected growth in demand for petroleum in the region.
The growth in southeast Asia's demand for petroleum could also be a key driver for the Japanese refiner to seek a broader market to absorb Japan's expected surplus of refining capacity, since Japanese demand is on a downtrend.
"We are not considering any immediate action. But over time, refining capacity will be somewhat excessive relative to domestic demand. On the other hand, demand will continue to grow in southeast Asia," Tanaka said. "We will determine the future refining capacity based on how much overseas markets such as southeast Asia grow and whether supply from domestic refineries can be used there."
"It is a matter of how we balance between the future outlook and marginal refineries, so it is an issue that we need to assess on an ongoing basis," Tanaka said. Eneos has around 1.64mn b/d of refining capacity in Japan, accounting for the largest share in the country's overall capacity around 3.11mm b/d.
"There are no specific projects under consideration, but we are looking at whether there is still room to expand further in the downstream business in southeast Asia," Tanaka said.
Eneos is also exploring the possibility of expanding overseas business in other sectors. The company has also recently announced the plans to acquire US-based chemical producer TPC Group. "The US market is attractive given the competitiveness of ethane crackers and feedstock," Tanaka said.
Eneos is also focusing on southeast Asia as the "core area" for upstream business including the LNG sector and aims to expand it, Tanaka said.
